Does Your Personal Auto Policy Cover Rental Cars? Answer: No!

Yes, I know I wrote about this a few months ago. The problem just will not go away, so I’m taking another shot. For years in E&O seminars, I always recommended to agents that they recommend to customers to buy the rental car loss damage waiver (LDW). I never did, though I knew the downsides to not buying it.

Then on a trip to Las Vegas, the Grand Canyon, and Phoenix, I rented a car and the LDW was only $9.95 a day, rather than 2-3 times that amount. I thought it was a good deal, so I bought it. The night before our 6:30 a.m. flight, we were at a Mexican restaurant and when I came out, I found that the entire back end of the rental car was smashed in, likely by some drunk or otherwise negligent person leaving the parking lot. The restaurant gave me a wire coat hanger and I was able to tie down the trunk which wouldn’t close.

The next morning, I simply returned the car, the attendant acknowledge the LDW, and we were on our way. No discussions, no paperwork, no insurance claim filing, no credit card charges (particularly for things like diminished value), etc. It was the best value of my entire trip and it was a tiny fraction of the overall cost of the trip.

Today, I view purchasing the LDW as a necessary evil to make the trip more enjoyable from a “quiet night’s sleep” perspective, as taught in risk management classes. If you want a good vacation, you’d probably choose an Embassy Suites over a Motel 6. I view the LDW in the same light.

David Thompson, CPCU has many stories about people who don’t buy the LDW. For example, the agent whose customer went rock climbing in Colorado and didn’t buy the LDW because “I’m a good driver.” Well, the guy who side-swiped his rental car in the parking lot at the rock climbing venue was not a good driver. He got hit by the rental car agency for several uncovered charges, including about $3K in diminished value, got sued, and had to pay anyway, along with what the attorney cost him to respond to the lawsuit filed in Colorado. For less than $100, a small percentage of the overall cost of his trip, he could have walked away from the damage.

Below are two articles from the Big “I” Virtual University. As a public service, they are not password-protected. I very strongly suggest that you direct everyone you work with to these articles which explain why you and your customers should almost always buy the LDW.

Bill Wilson

Founder at InsuranceCommentary.com

One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America.
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7 Comments

I rented a car in England on my first trip abroad – dumb, I know, but hey I was 20 something. I turned in the rental boarded my flight and got a nice letter from XYZ rental (a large one who you would recognize) informing me I owed them for a cracked windshield, lost rental time, restocking fees, and a pile of other charges. Best of all, there was no crack when I returned it!! They sent many letters threatening me and it went on for months. Their bill was over $500 if memory serves me and this was in the 90s. Ultimately, I got it resolved but it was time consuming and frustrating. I’ve purchased the damage waiver ever since and always advise my clients to do the same.

Great story. I would ask everyone reading this, the next time you rent a car, when you turn it in, ask the attendant how many vehicles he or she see returned daily with damage. You’ll be surprised and it’ll make you rethink whether this is the cash cow we might think it is for rental car companies.

I got an excellent email from risk management consultant Randy DeLopst about whether there might be coverage under a personal umbrella policy for damage to a rented auto. This was my response:

Randy, that’s similar to the ISO PUP language:

“Property damage” to property rented to, occupied or used by, or in the care, custody or control of, an “insured” to the extent that the “insured” is obligated by contract to provide insurance for such property. However, this Exclusion (A.17.) does not apply to “property damage” caused by fire, smoke or explosion;

I would interpret it the same way you do, including coverage for diminished value (though HOW MUCH the diminished value loss is would be subject to interpretation). It would be important to make sure the carrier does as well. I ran this by several personal lines gurus and they concur. Jerry Kennedy, an agent and educator in Washington, responded:

“I agree that this would provide broad CCC coverage for damage to rental cars as rental car contracts typically don’t require the renter to have insurance for damage to the rented car, they just make the renter contractually liable for all kinds of loss or damage, including diminished value the property suffers. There would be an SIR to pay, but those would rarely be more than $1,000.

“Not that this would help with most equipment rental contracts, though. When I had to rent a Bobcat to clear my parking lot this last winter, that rental equipment contract, like most contracts for equipment contractors might rent, requires the equipment renter to have insurance for loss to the equipment. Not that my insurance office has an Inland Marine form that covers rented equipment!”

The problems with this approach are obvious. There is still paperwork to be done, a claim to be filed, time invested in resolving, etc. vs. simply handing the keys to the attendant and walking away. There is the possibility of disagreements about interpretation of the language of the value of the alleged damage, loss expenses, etc., as outlined in the “Top 10” VU article linked from the blog post above. In addition, keep in mind how few consumers (1) have umbrella policies, (2) have umbrella policies with this language, or (3) really only have excess policies that provide no broader coverage than the underlying policies.

For the most part, for me, I’d just as soon give the rental car company another $100+ and walk away from damage.

In 2010 I flew into Las Vegas for a 2-day trip to Death Valley. Yes, Death Valley in the summer! I got upgraded to a large SUV when I rented for two days. An hour out of Vegas a stone flew up from the road and “tapped” the very lower left corner of the windshield. With the temperature well above 100 degrees, you could almost literally watch the “tapped” windshield turn to a crack and move across the windshield. Within 12 hours, the crack ran literally corner to corner of the windshield.

I checked a glass website and the cost was over $1,200.

Upon return to the Vegas airport I showed the lady the crack and she interrupted me, “I can’t check you in, you have too go in the office and fill out a report.” I showed her my contract where, for $22.99 a day (Under 50 bucks) I had bought the LDW. She verified that, and put a small sticker on the glass stating: “Cracked Glass – Has LDW.” She gave me the receipt and said, “Have a nice flight.”

No report to fill out, No PAP claim to file. I’d have been hit for the $1,200 plus (my bet) a day of down time, and probably an administrative fee. It was a great feeling to walk away; I’ve done it three times on rentals.

I just booked a car for a 7-day trip to Utah in the summer. I used points to get the car for free, but I will pay $32.99 a day (Hertz continues to raise the price) for LDW. With taxes that will be around $240, My view is, if I can afford to fly out west for a 7 day vacation, I can afford thee LDW. I just build that cost into my “vacation budget.”

Rental Vehicle Coverage is a separate coverage required by New York State law. The NYS Department of Financial Services stated in a 2004 advisory legal opinion,

“Section 3440 of the N.Y. Ins. Law and the regulation relating to rental vehicles (Regulation 35-A) state that the liability insurance policies for vehicles which insure less than five private passenger vehicles, shall provide rental vehicle coverage for the obligation of the insured for actual damage to, or loss of vehicle rented by the insured under a rental agreement with a term of thirty continuous days or less.

“Deductibles on collision coverage do not apply under N.Y. Ins. Law § 3440 (McKinney 2003) and Regulation 35-A. In addition, neither § 3440 or Regulation 35-A permit any limitation to the coverage amount for rental vehicles. … Therefore, when an insured drives a rental vehicle and causes damage to it, the insurer cannot make the payment out of the collision portion of the insured’s policy and take a deductible. The payment must be made out of the rental vehicle coverage. This coverage is a separate coverage that is required to be included in the liability portion of an individual’s auto policy.”

Therefore, whether the insured carries comp and collision makes no difference in the handling of a rental car claim.

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